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Highlights
- Crude oil demand outpaced supply in the year 2021.
- The EIA estimates global oil inventory to start building up in 2022, on the back of additional supply from the US and OPEC+.
- With a balance in demand and supply, crude oil prices are forecast to ease in 2022.
Crude oil delivered a great show in 2021. Though the commodity witnessed a price slump due to the absence of demand at the peak of the pandemic, its demand outpaced supply as soon as the market started recovering. The price started an upward trajectory from the third quarter of 2020 and continued its rally throughout 2021.
Related read: Crude oil rises despite rising Omicron concerns
WTI crude, which crossed US$80/bbl in 2021, is currently trading in the range of US$70-80/bbl. Industry experts and analysts forecast global oil inventories to start building up in 2022. Rising production from OPEC+ countries and the United States coupled with a slowdown in global oil demand will ease the prices. Even if demand remains at the current level, the additional production from OPEC+ nations and the US will flood the market.
Growing concerns due to the Omicron variant of COVID-19 and return of lockdowns and restrictions will affect the prices in the near term. Many countries have put restrictions on international flights, lowering the demand for aviation fuel. As the cases are rising, the transportation sector will also suffer, leading to a further slump in demand.
Related read: Crude oil rallies on reduced threats of Omicron’s severity
The year 2021 saw an unprecedented rise in fuel prices, which also jacked up inflation. Analysts and experts are hopeful that the world could finally see lower prices of crude oil and gas in 2022. Also, as the winter season ends in Europe and other parts of the world, the demand will gradually come down for fuels, including natural gas.
Crude oil 5-year price chart (Image source: Refinitiv; Analysis: Kalkine Media)
The above chart showing crude oil prices for the last five years can help us understand the price movement in 2022. Looking at the chart, it is pretty much clear that oil has support around the US$60/bbl range. In a time frame of 12 months, it could be seen that the prices have rebounded multiple times from this range.
Crude oil 1-year price chart (Image source: Refinitiv; Analysis: Kalkine Media)
On the upward side, crude oil does not seem to be crossing the US$85/bbl mark in the coming year. It is pretty much safe to say that crude oil could move in the price range of US$60 to US$85 per barrel range. The EIA estimates global crude oil inventory to start beefing up in 2022, as the US is boosting its production, and OPEC+ is slated to gradually increase its production in a phased manner.
Related read: IEA sees oil market balance, 3 ASX stocks to watch out for
Back in 2020, OPEC+ had slashed its daily output by 10 million barrels, which is being added to the market in different phases. The oil industry is highly volatile, and the price is influenced by multiple factors. In the near to mid-term, crude oil does not seem to trade above US$80/bbl. Again, this is just a speculation based on data in hand and price movements in the last one year.
LNG and natural gas prices are also known to fluctuate in sync with crude oil prices. Australia is the world’s leading exporter of LNG. It will be interesting to see how ASX-listed oil and gas players will perform in 2022 as crude oil price is forecast to trade lower than the current level.
Related read: Is AGL Energy (ASX:AGL) share price tumbling on climate risks?
The below table shows the stock performance of major ASX-listed oil and gas players in 2021.
As it is visible in the chart above, industry players like Santos and Woodside have not delivered significant returns to their shareholders in 2021. It will be interesting to see how these companies perform in 2022 amidst the Omicron threat.
Related read: Woodside CFO Sherry Duhe resigns to join ASX-listed Newcrest Mining
